What are like-kind exchanges in real estate?

If you’re involved in a real estate business in Texas, there are a great many details that you will need to keep in mind at all times. One of them will be the payment for and transfer of property. Of the different means that you can use to facilitate this transaction, one possibility is a like-kind exchange.

What is a like-kind real estate exchange?

Like-kind exchanges are a form of trade in its purest sense. This type of exchange occurs when you transfer business or investment property to another party. In return, you will receive a property of like value. The defining trait of this exchange is that no money changes hands.

The main advantage of a trade of this type is that you will not be required to register either a gain or loss under Internal Revenue Code Section 1031 of the tax law. If you receive other types of property or money not recognized as like-kind, you must register them as a gain to the extent of their valuation.

What kind of property is considered like-kind?

A like-kind exchange can be a quick shortcut to acquiring more properties for your portfolio. You should first note that real estate property in the United States is not considered like-kind to any property outside of the country. Within the USA, any type of property within the country, such as an apartment complex, can be traded for a property of equal value. This means that you can easily arrange a like-kind deal to exchange a condo or apartment building for one that is owned by another party.

You can use Form 8824, Like-Kind Exchanges, in order to report the deal. All of the relevant details will be provided in the instructions.